Kenya Construction Industry

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World Development, Vol. 22, No. 10, 1609-1612, 1994p.Copyright 0 1994 Elsevier Science LtdPrinted in Great Britain. All rights reserved

0305-750x/94 $7.00 + 0.00

Pitfalls in Technology Transfer: KenyasConstruction Industry

D. LUVISIA BAKULIUniversity of Nairobi, Kenya

Summary. - Tremendous growth in technology adoption by developing countries is evidenced by thelarge number of hardware and software imports in engineering, medicine and telecommunications.Although each import carries with it both process and management technology, very little is done toadapt the attendant management styles to suit the cultural and environmental conditions in the develop-ing countries. This paper discusses how rigid management organizations structures and tendering proce-dures can stifle the growth of a locally controlled construction industry in a developing country. It tracesthe unsuccessful efforts by the Kenyan government to directly intervene in the transfer of technology byenacting well intentioned but difftcult to implement legislation.

1. INTRODUCTIONThe construction industry can be broadly divided

into two categories: building and civil engineering.Building construction includes heterogeneous prod-ucts such as housing for direct consumption; schools,health centers and office buildings for provision ofservices; and factories and warehouses for both pro-duction and provision of goods and services. Civilengineering products are also diverse, ranging fromsimple operations such as site clearing and fencing,construction of parking lots for projects that requireheavy machinery and large capital investment,e.g. dam construction, airport construction anddredging of harbors. In many cases both civil andbuilding works are carried out in a single project.These two activities are always grouped togetherin national accounts and statistics. Thus, thediversity of the products, the detailed design, andthe scale of operations have necessitated afragmented organizational structure in theconstruction industry. Consequently, very advancedmanagement skills are required to successfully run aconstruction business.

2. INDIGENIZATION POLICIESSeveral approaches have been used by the Kenyangovernment to deliberately involve indigenous busi-nessmen in the construction industry. Most notableare the establishment of the National Construction

Company and use of policy guidelines by the Ministry

of Works that favor local businesses when awardingcontracts.

(a) The National Construction Corporation

In 1967, through an Act of Parliament, the Kenyangovernment set up a National Construction Company(NCC) to train African contractors in constructionbusiness management (Republic of Kenya, 1967). Theseed money used to establish this company was pro-vided by NORAD, a Norwegian funding agency. TheNCC was given both general and specific powers to promote, assist, and develop theindustry (Republic of Kenya, 1972). constructionGenerally interpreted the NCC Act empowered thecorporation to operate as an architectural and engi-neering firm. It could also own and manage either amanagement institute or a technical college, operate amanufacturing business and own construction equip-ment for commercial use. Because no other organiza-tion was allowed to perform all of the above functions,this was an enviable position for NCC to hold in theconstruction industry.Furthermore, the NCC Act permitted the corpora-tion to have a say in the design of the syllabi at institu-tions that train personnel for the construction industry.At present there are over 10 institutions that offercourses in construction technology. They range fromvocational training centers to colleges or architecture

*Final revision accepted: April 27, 1994.1609


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1610 WORLD DEVELOPMENT

and engineering at the universities. Yet, the NCCnever participated in the design of courses taught atthese institutions. For over 20 years, none of these col-leges offered a construction management course. Itwas not until in mid-1980s that the Department ofBuilding Economics at the University of Nairobiintroduced a construction management course. Eventhen the course only offered theories of managementpractices,It is, however, a good starting point that needs to beextended to include a semester of internship or fieldexperience. The NCC on its part narrowly . . . inter-preted its terms of reference as simply an extensionservice to African contractors to enable them to com-pete more effectively with longer established Asianfirms (Wells, 1972). To date there are very fewAfrican contractors that would trace their success tothe help they received from the NCC. Although theKenyan government established a corporation to indi-genize the construction industry, it did not define mea-surable objectives to be achieved by the corporation.Twenty-five years later the corporation was disbandedwithout having established a single viable indigenous-owned construction company.

(b) Policy guidelines

Most policy guidelines for various sectors in theeconomy are contained in the development plans pub-lished by the Ministry of Economic Planning everyfive years. The guidelines adopted by the governmentfor the construction industry can be divided into twobroad categories: direct and indirect intervention.Under indirect intervention, the government imposeda training levy and set up a craft training center. It washoped that the contractors would send their employeesto the center for skills training. The direct interventionpolicy involved setting aside some categories of workfor African-owned businesses.

The government imposed a surcharge of 1.25% ofthe contract value as a training levy on all contractswhose value exceeded Kshs. 50,000. The levy was anincentive for private contractors to send theirunskilled employees to the National Industrial andVocational Training Center (NIVTC). Very few con-tractors made use of the facilities at NIVTC.Contractors gave various reasons for not participatingin the training program. A majority of the contractorsfeared that by sending employees for training, theywould be training future competitors in the construc-tion business. This approach ought to be revised sothat the money collected as a training levy is donatedto colleges to fund research and development pro-grams in construction management. Contractors may

also be given incentives to offer internships to con-struction management students.(ii) Tender himThe plight of the African contractors has continuedto receive government attention and concern. TheMinistry of Works operates a tender bias on domesti-cally funded projects, aimed at promoting Africansparticipation in the construction industry. The tenderbias is divided into three categories. For contracts ofup to Kshs. 50m, preference is given to any Africancontractor bidding for the project and is within 5% ofthe estimated contract value despite there being a non-African contractor with a lower bid. The second levelis a bias of 2.5% for projects whose estimated value isbetween Kshs. 5m and Kshs. 20m. Finally, a I % biasis offered for contracts whose estimated value isbetween Kshs. 20 and Kshs. 50m. The rationalebehind the bias is that non-African contractors whohave better access to credit facilities and have moreefficient management structures in their organizationsare able to undercut African contractors on any pro-ject. No studies have been carried out to determine theefficacy of the tender bias scheme.

(c) Categories of construction contractorsOther than working as subcontractors to largeAsian-owned or foreign-owned general constructionfirms, most of the African contractors do minor build-ing maintenance work for the government. Indeedgovernment building maintenance work is a preserveof the African contractors. The Ministry of Worksregister of contractors eligible to bid for government

contracts categorizes them by nationality and by thevalue of contracts they are able to execute.According to, the definition in Table I, small con-tractors are in category F, G and H. A survey of theregister in 1986 revealed that there were about 1,500contractors in these three categories, and all of themwere owned by Africans (Bakuli, 1987). The size of afirm depends primarily on the amount and frequencyof jobs that it gets over a year. The large number offirms in these categories means that they have to sharethe few jobs available, thus they cannot afford to hirepermanent employees. The same survey establishedthat a majority of these businesses were single propri-etorships with on-call supervisors. Operating in thismanner did not help them gain managerial skills.Moreover, few of the part-time supervisors felt anyallegiance to one particular contractor.In addition to the Value Code Register, theMinistry of Works categorizes contractors by citfzen-ship. They are divided into three categories: African,Non-Citizen and Other-Citizen. The contractors havethe option of registering work in any of the eightprovinces. Twenty percent of these contractors are in


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PITFALLS IN TECHNOLOGY TRANSFER 1611

Table 1. Value code of approved contractors, Ministry of Works, 1986

Category Value, Kshs. 000,000 (1)African

(2) (3)Other-Citizen Non-Citizen

(1) (2) (3) (1) (2) (3)30.0 +

20.0-29.9910.0-19.995.0-9.992.5-4.991.5-2.49

0.75-1.49up to 0.749

Total

7 0 0 20 0 5 49 2 33 0 0 13 0 8 24 1 8

15 1 11 12 0 3 20 2 1745 1 35 11 1 17 21 1 1792 10 96 8 1 10 17 4 18

143 20 156 5 0 11 26 2 9145 31 158 3 0 12 18 1 9264 101 480 3 1 12 17 0 17714 164 936 75 3 78 192 13 98

1,814 156 303Source: Bakuli, D. B. L. (1987), p. 27. Interviews with building contractors.

either the Other-Citizens or Non-Citizens category.Sixty-eight percent (68.2%) of the 20% are in valuecategories A to E. Contractors in these categories maybid for contracts with a value over Kshs. 5m.Although 80% of the firms are African-owned, how-ever, 65.9% of these are in the lowest three value cat-egories, F to H. This means that African-owned firmscannot bid for contracts over Kshs. 2Sm, which isequivalent to the cost of a five-bedroom suburbanNairobi house. The scale of the works on such a pro-ject cannot provide the contractors with the necessaryexperience to handle bigger jobs.An examination of the distribution of contractsawarded by the Ministry of Works between Januaryand August 1985 showed that of the 40 new buildingconstruction contracts awarded in this period, 22 wereawarded to African contractors (see Table 2). Five outof the 22 contracts, however, were awarded to oneAfrican contractor. The total value of the five con-tracts was five times the value of the remaining 17contracts (Bakuli, 1987). Thus, the average value ofthe contracts awarded to African-owned businesses isfurther reduced by this skewed awarding of contracts.Most of the indigenous contractors ended up with pro-jects whose value was below that of the category inwhich they were registered. Again, the scale of opera-tions on the projects were such that it could not offerthe indigenous contractor challenges in management.Faced with such problems as insufficient work, lackof experience and lack of finance, local contractors

resort to devious means to complete a constructionproject whenever they win a contract.

3. PROFILE OF INDIGENOUSCONTRACTORSMoavenzadeh (1984) suggests that there are fivestages that the construction industry goes through as a

country develops:-Foreign firms do most of the work because theyare the only ones with sufficient expertise to han-dle larger projects; local subcontractors develop;- Small, local contractors execute the smallerprojects;- Local contractors take most of local workregardless of magnitude;- Local firms form joint ventures with foreignfirms as necessary; and- Local contractors go abroad.

Unfortunately, this pattern of development does nothold true for Kenya. The sector has stagnated at thelevel where small contractors are predominant andexecute small maintenance projects. For the suggestedpattern of growth to be realized, solutions have to besought outside government. Experience indicates thatto enact specific legislation that makes transfer ofmanagement technology mandatory will not succeed.Joint ventures between multinational corporations(MNCs) and local contractors should be

Table 2. Distribution of new construction projects from Januaq to August 1985, Ministry of Works, KenyaCategory African Other-Citizen Non-CitizenTotal no. contracts 22 2 16Total value in Kshs. 33,744,002.10 28,944,628.80 400,209,001.80Avg. contract value Kshs. 1,533,818.30 14.472.3 14.00 25,013,063.00Source: Bakuli, D. B. L. (1987), p. 28.


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encouraged when awarding contracts to MNCs. It isnot enough to require that local contractors operate assubcontractors. First, it may not be economicallyfeasible to subcontract certain projects. Second, thesubcontractors may not learn much from the maincontractor since their interaction is limited to just afew site meetings. Better management skills can belearned in an environment where the local contractorsare allowed to observe and participate in the decision-making process by the MNCs. An arrangement whichallows local contractors to be on the managementboards of joint ventures with the MNCs would helptransfer managerial skills. In an attempt to foster con-struction management technology transfer, theTaiwanese government required in 1991 that foreignfirms bidding for infrastructure contracts enter intojoint ventures with Taiwanese firms in licensing orresearch and development (ENR, 1992). The firstphase of this six-year project ends in 1997. It isinstructive for other developing countries to study itsimplementation so that they can draw useful lessonsfrom it.

4. CONCLUSIONSSolutions such as the tender bias are not especiallyhelpful since the bulk of the construction projects in

Kenya are financed by donor capital, which is not sub-ject to the bias. Moreover, the use of a tender biasintroduces nepotism and corruption in the award ofcontracts. It is worth noting that although the educa-tional level has not been an impediment to runninga successful business enterprise by Kenyans (seeMarris, 1971), the construction business requires alevel of knowledge beyond that ordinarily possessed

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by, say, a shopkeeper or taxi cab operator. The con-tractor must not only deal with other highly educatedprofessionals, but also handle complex business oper-ations.Several reasons can be hypothesized for the poorperformance of the NCC during its 25 years of exis-tence. First, without an understanding of the back-grounds, therefore, strengths and weaknesses, of thelocal contractors, the NCC could not design appropri-ate management courses. Second, the NCC did nothave personnel with sufficient construction manage-ment skills to transfer to indigenous businessmen. Themultinational construction companies operating in thecountry are capable of transferring these skills.Different approaches need to be sought to involvethem in the transfer of managerial skills to local entre-preneurs. Whatever strategy is adopted, the govem-ment should reduce its involvement as much as possi-ble. In addition to local participation the importedtechnology ought to be depackaged to increase useof locally available technology (Coughlin, 1991).Although the impact of MNCs on the local economyhas been studied in several sectors (for example seeKareithi, 1991) on the linkages of MNCs and foreignowned media and their impact on the local economy.there has been relatively little study on the impact ofMNCs on the construction industry in developingcountries. Such sectoral studies will not only identifylocally available technology but also provide a theo-retical framework for engineering management andconstruction economics studies. In addition, studies ofnew training models should be undertaken by teams ofindustrial psychologists and engineering managementtheorists to identify key transferable managerial skillsand the environment that enable their transference.

REFERENCESBakuli, D. B. L., An evaluation of the training of small-scale

contractors: A case study of the national constructioncorporation, Masters Thesis (Nairobi: University ofNairobi, 1987).

Coughlin, Peter, Strategy and tactics for negotiating jointventures and technology-transfer agreements: Lessonsfrom Kenya, in P. Anyang Nyongo and Peter Coughlin(Eds.), Industrialization at Bay: African Experiences(Nairobi: Academy Science Publishers, 1991).ENR, Engineering News Record, Taiwan plans to upgradetechnology transfer levels (February 3, 1992), p. 3 1.

Kareithi, Peter J. M., Multinational corporations and for-eign owned media in developing countries: Lonrho andthe Standard Newspapers in Kenya, ContemporaryCrises, Vol. 16 (1991), pp. 199-212.

Man-is, P., and A. Somerset,African Businessmen (Nairobi:East African Publishing House, 197 1).

Moavenzadeh, F., The construction industry in developingcountries, in Contributions to So&d Economic Growth(Nairobi: UNHS. 1984).

Republic of Kenya, The Development Plan, 1966-1970(Nairobi: Government Printer, 1967).Republic of Kenya, Law.~ of Kenya, The NCC Act, Chapter

493 S. 15 (Nairobi: Government Printer, 1972).Wells, J., The construction industry of East Africa, Paper72-2 (Dar-es-Salaam: Economic Research Bureau,1972).

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Kenya Construction Industry